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Why women will fall short in retirement, even if they wait until age 67

Key Points
  • Nearly 3 out of 4 women will face significant savings shortfalls if they plan to retire at age 67, according to data from Aon.
  • Saving more money during your career is only part of the solution. Women must also invest their savings to take advantage of compounding interest over time.
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Women hoping to retire by age 67 face a tough choice: sock away more cash now or delay retirement even further.

Those were the findings from a recent survey by Aon. The retirement consulting firm analyzed the 2017 records of 1.3 million individual savers, along with data from the Bureau of Labor Statistics.

About 7 out of 10 women participating in the survey will need to overcome significant shortfalls in order to retire at 67, Aon found. Their savings will be short by at least twice their salary.

Female employees are less prepared for retirement because they not only earn less than their male counterparts but also have a longer life expectancy, said Grace Lattyak, associate partner at Aon.

Women in the U.S. generally make about 80 cents to each dollar a man earns. And women have an average life expectancy of about 81, according to the Centers for Disease Control and Prevention. Men have an average life expectancy of about 76 years.

Women also take time out of the workforce to care for family members, which could affect their ability to earn more money and save for retirement, said Lattyak.

Indeed, close to 2 in 3 female workers who took family leave were the primary caregiver for a sick relative, according to data from Pew Research.

"In general, there is a huge gap between the savings that women might have for retirement compared to men," said Avani Ramnani, a certified financial planner and director of financial planning and wealth management at Francis Financial in New York.

Saving and investing

There is no evidence that women underperform men when it comes to running money.
David Lees | Getty Images

On average, women should have 11.6 times their last annual salary saved by age 67 in order to retire, according to Aon's analysis.

However, based on current savings rates, they'll only have an average of about 7.6 times their salary saved by that age. They'll face a steep shortfall.

In order to beat that hurdle, female workers will need to either defer their retirement or save more money during their working years.

There are different approaches to saving up that money.

Aim to contribute up to 15 percent of your salary each year in your 401(k), said Ramnani.

Also, consider working with a financial planner who can help you figure out how much you need to have saved by the time you retire, she said.

"You should estimate how much your expenses are going to be for each year of retirement, and work backwards to see how much you'll need at the beginning of retirement," said Ramnani.

This will give you a sense of how much you need to save each year in order to meet that goal.

Finally, saving is only part of the equation. You should invest that money so that it grows over time.

"Women tend to shy away from investing, but keeping the money in a bank account will not make it grow the way you need it to grow," said Ramnani.

Your workplace 401(k) will give you a good start, she said. Your contributions are made on a pretax basis, and they grow tax-deferred until you retire and it's time to withdraw the money.

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